A BACKDOWN by global regulators could support Australian bank profit margins, by allowing lenders to put more of their free cash into assets that generate higher returns.

To protect the world economy from future financial shocks, regulators plan to force banks to hold larger amounts of safe assets such as top-rated government bonds.

But in a welcome development for overseas banks, on Monday global regulators said they would water down the liquidity rules so that banks could hold more assets that pay higher returns, including shares and corporate bonds.

The reforms will also be phased in more slowly, over the four years to 2019, amid complaints that the changes would crimp lending and strangle economic recoveries overseas.

It is not clear how the backdown will affect Australia, as the local regulator has the final say on the new rules and is known for its conservatism.

The Australian Prudential Regulation Authority is considering the changes before releasing more details on its planned liquidity rules in the coming months.

However, any softening in the liquidity rules is likely to benefit the Australian banking sector, as the liquidity rules proposed until now have had the impact of dampening profits.

The chief executive of the Australian Bankers Association, Steven Munchenberg, said the changes announced on Monday could make it easier for local banks to satisfy liquidity rules if they were adopted by APRA.

''On the face of it, it seems to be a positive thing. Not least because we know Australia, ironically because of its relatively strong fiscal position, was always going to have a problem meeting liquidity requirements,'' he said.

Under the liquidity rules, banks must hold enough easy-to-sell assets to cover their lending outflows for a month - what APRA calls a ''significantly severe liquidity stress scenario''.

Australian banks would have been unable to meet this target due to the relatively low supply of government bonds, so the Reserve Bank said it would offer banks a facility giving them access to high-quality assets.

If APRA relaxes its rules in line with the softer approach now planned by overseas regulators, banks may have less need for the Reserve's facility, as holding assets such as shares and corporate bonds could prove more attractive.